The LIC RBI HDFC Bank: Improve Investor Sentiment

India’s largest insurance company, LIC, has been given the green light by the Reserve Bank of India (RBI) to acquire up to 9.99% of the shares in HDFC Bank, the country’s largest private sector bank. This approval came in response to an application submitted by LIC RBI HDFC Bank. The insurance firm is required to make the acquisition within a year and must also ensure it does not exceed the approved percentage of the bank’s paid-up share capital or voting rights. Importantly, LIC will not be penalized if it does not achieve this stake. As of December 2023, LIC held a 5.19% stake in HDFC Bank.

Current Share Price of LIC RBI HDFC Bank

In the wake of the global havoc wrought by COVID-19, HDFC Bank has experienced an alarming dip, primarily due to its disappointing performance in the third quarter. The financial results for the quarter ending in December (Q3FY24), unveiled on January 16th, fell well below industry projections, particularly in terms of deposits and liquidity. Constraints on liquidity coupled with increasing financing costs severely impacted the net interest margin (NIM), which in turn, played a significant role in precipitating a fall in HDFC’s share value. Consequently, the wider market, including indices like Nifty 50 and Sensex, felt the shockwaves. A noticeable 15% reduction in share value over a span of five consecutive sessions post the release of third quarter earnings clearly underlined this impact.

Interestingly, the announcement of a potential stake acquisition by LIC, pending approval from the RBI, has led to speculation regarding an upturn in HDFC Bank’s fortunes. According to this development, LIC might be allowed to secure up to 9.99% of HDFC Bank’s shares, which naturally led observers to posit an imminent recovery starting from the subsequent Monday. The views of esteemed industry analysts are now eagerly awaited to lend more clarity to the situation.

However, as of Thursday’s close, shares of HDFC Bank stood at ₹1,435.30 each on the BSE, reflecting a 1.41% decrease in value.

Expert Opinions Revealed

The CIO & Managing Partner of ITI Growth Opportunities Fund, Mohit Gulati, perceives the current standing of HDFC as a beacon of hope for its investors. Despite the stock currently teetering on its annual nadir, HDFC stands as one of the select few private lending institutes that have stood the test of time. It is undeniable that recent results fell short of predictions. However, Gulati regards the Life Insurance Corporation of India (LIC) as a potential morale lifter for HDFC.

Gulati also speculates that the stock is about to hit its lowest, predicting a potential reversal soon. Concurrently, Arun Kejriwal, an esteemed figure in Investment Services highlights that the authorization for LIC to invest in HDFC is valid for a year. He quells the surge in expectation for immediate purchasing, stating that it’s not realistic.

Furthermore, Kejriwal explains that during moments of widespread fear about LIC RBI HDFC Bank shares, LIC will traditionally step in and make minor purchases, thus keeping the market from over-anticipating a complete recovery for HDFC Bank.

Additionally, the Foreign Portfolio Investments (FPIs) deadline is somewhat related to this situation. According to the Securities and Exchange Board of India (SEBI), adequate disclosures of holdings are mandatory for liquidating these holdings within seven months. Therefore, when market sales and price drops occur, LIC will seize the opportunity to purchase more shares.

The recent rule update from SEBI also mandates that if offshore funds do not disclose investor information by January 29th, they have an additional seven months to clear their holdings. With LIC’s involvement in HDFC Bank, any free float created from FPIs’ aggressive selling can be absorbed to benefit the market, believes Vinit Bolinjkar, Head of Research at Ventura Securities.

While Avinash Gorakshakar, Head of Research at Profitmart Securities, expects this development to invigorate market sentiment for LIC RBI HDFC Bank, he emphasizes that it hinges on HDFC delivering satisfactory figures. Only then can the long-term upside come to fruition. As LIC steps in to alleviate the selling pressure on HDFC Bank, this will provide some reprieve to persistent investors. Noting technical aspects, Prashanth Tapse of Mehta Equities predicts a good value-buying zone for the stock between figures of 1,390 and 1,420. He also weighs in on a limited downside from here on out.

This article gathers information from multiple sources, including wikipedia.org and a variety of newspapers. Even though we have taken extensive measures to ensure accuracy, we cannot assure the complete verification and 100% correctness of every detail. It is recommended to exercise caution when utilizing this article as a reference for research or reports.
EN -